Sale of free drug samples

What are the legal implications of selling free samples to patients?

Issue: June 1, 2004

ByAllison W. Shuren, JD, MSN

Facts

Eye Associates (EA) is a busy ophthalmology practice specializing in the treatment of glaucoma and cataract surgery. Every year EA receives free drug samples from a pharmaceutical sales representative. In the last several years, the value of the free samples totaled nearly $6,000. Although EA sometimes gives the free samples to needy patients, it often sells the free samples to patients to help make up for the continuing decline in Medicare payments.

Is EA at any legal risk for selling the free samples to patients?

Yes. EA may be liable under the Federal Food Drug and Cosmetic Act (FDCA), as well as state anti-kickback laws.

The FDCA is enforced by the U.S. Food and Drug Administration. Section 503(c)(1) of the FDCA prohibits the sale, purchase or trade, or the offer to sell, purchase or trade drug samples. For purposes of this provision, a drug sample is defined as a unit of drug that is not intended to be sold, and is intended to promote the sale of the drug. Drug samples generally are labeled as samples that are not for resale. Violations of the FDCA are punishable by fines and/or imprisonment under FDCA § 303(a) & (b).

The sale of the free samples to patients also raises significant risk that EA could be liable for receiving an illegal kickback. For example, the Federal Anti-Kickback Statute makes it a crime to knowingly offer, pay, solicit or receive anything of value (direct or indirect, overt or covert, in cash or in kind) that is intended to induce the referral of a patient for an item or service that is reimbursed by a federal health care program, including Medicare, Medicaid, TRICARE, and the programs covering veterans benefits (42 U.S.C. § 1320a-7b). The law ascribes liability to both sides of an impermissible kickback transaction, and has been interpreted broadly by several courts to apply to situations where only one purpose of a payment is to induce referrals, notwithstanding the fact that there may be other legitimate purposes for which the payment is made.

Traditional application of the Anti-Kickback Statute involves cases where physicians are paid some type of remuneration to refer patients to another health care provider or entity. However, the law also applies to a physician or other health care provider who is paid remuneration to prescribe or otherwise recommend a drug that is covered by a federal health care program. Assume for example, that the facts of the scenario presented are changed so that EA bills either Medicare or Medicaid for the free drug and receives payment. Because EA never paid for the drug, any payments it receives in connection with the samples is tantamount to the pharmaceutical sales representative paying EA cash for prescribing the drug for its patients. Only in this modified scenario, the situation is worse because the federal government unknowingly is the source of the money that is serving as the kickback.

In the EA scenario set forth above, the Federal Anti-Kickback Statute would not be implicated because EA is not billing a federal health care program for the free samples; instead, the practice is charging the patients directly. EA, however, is not necessarily free from legal risk. Many states have passed “all-payor” anti-kickback laws that mirror the prohibition found in the federal statute, but apply to items and services paid for by any payor including the patient. Like the federal statute, these laws may carry civil and/or criminal penalties such as fines and imprisonment or administrative sanctions against a physician’s medical license.